Monday, 20 March 2023


 Only three months ago the Credit Suisse bank issued its annual Task Force on Climate-related Financial Disclosures report, promising to set the bank at the centre of the global Net Zero carbon trajectory.

As shares of the legendary Credit Suisse bank tax haven plunged 24 per cent on Wednesday and fuelled another day of alarm over the risks imbedded in the financial system, green activists at Bill McKibben’s climate operation distributed invitations to an online Earth Day event titled “Divest/Invest: How we stop banks from fuelling the climate crisis.”

The message might have rung bells of support a week ago. The plan was to stop America’s big banks from investing in fossil fuel development and “shut down” the oil and gas industry.

Such action calls are likely to fall on deaf ears this week as the global policy and investment focus is on keeping the banking industry alive and well. Instead of forcing banks to divest fossil fuels assets, the challenge now is to stop institutions from divesting bank shares.

Today it’s the banking climate that needs to be protected in an environment filled with predictions that the world financial system is in some peril. 

Another caution came from Bob Michelle, the chief investment officer at JPMorgan Asset Management, who warned that Credit Suisse is “absolutely” a sign that there is more trouble on the horizon. It is, said Michelle, the “tip of the iceberg” of banking turmoil to come.

It’s a cold metaphor that neatly brings us back to the climate activist campaign. In their easy-money world, banking icebergs have long ago melted away and there is nothing to worry about except how to get the banks to divest their fossil fuel holdings to make the world safe and green. But this idea that the only problem facing the planet is climate change is going to be more and more difficult to maintain.

There are indications that banks, central bankers and regulators have been dedicating too much effort and resources to the management of environmental, social and governance (ESG) issues. Tracking ESG risks, in other words, may well have been a distraction from managing the real risks foisted on the world economy by high government debt and inflationary monetary policies.

The Bank of England seems to be pulling back on climate change. In a report on climate-related risks issued Monday the Bank implies that climate risks in financial markets seem to be under control and “are appropriate.” It warned, however, that “Any use of macroprudential tools would need to be assessed carefully against how well they mitigate climate risks, their behavioural impacts, and the potential for unintended consequences.” In other words, now is no time to be flirting with unintended consequences of radical climate policy when real financial risks are being overlooked.

Notes of caution over climate management risk were issued in Canada last week by the federal government’s Office of the Superintendent of Financial Institutions. While climate change is an issue, the biggest risk seemed to be coming from “transition risks” created by government policy. “These risks can emerge from current or future government policies, legislation, and regulation to limit GHG emissions, as well as technological advancements, and changes in market and customer sentiment towards a low-GHG economy.”

Within Credit Suisse, a heavy public focus on ESG and climate issues was accompanied by less obvious failures to manage financial risk.

Only three months ago the bank issued its annual Task Force on Climate-related Financial Disclosures report, a 106-page document signed by its top executives. The report, they said, “provides important information on how we apply our expertise as a bank.” Filled with graphs, metrics and explanations, the report promises to set the bank at the centre of the global Net Zero carbon trajectory.

Credit Suisse’s financial management regime is another story. This week — as its shares fell to near US$2 from highs of US$50 a decade ago — the bank’s annual report said there were “material weaknesses” in its internal controls over financial reporting.

When it comes to bank management of risk in the future, the new focus is likely to be on the books rather than the climate. 

Read the whole article at this link:
Terence Corcoran: The bank crises could take down the ESG push
Financial Post, 17 March 2023

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